Some people will do anything to avoid paying taxes. I think of one particular strategy that was reported in The Wall Street Journal in 1994. It involved a potential legal defence being considered by some well-to-do professionals who failed to file income tax returns in the United States.
Apparently, these non-filers were asking to be excused because they suffered from an anxiety syndrome characterized by "an overall inability to act in (their) own interest," according to a New York Law Journal article. Victims are "highly ambitious, hypercritical, detail-oriented people," according to a psychiatry professor, and therefore cannot relax, don't know how to delegate, and tend to procrastinate and become secretive, the article suggests.
That's certainly one method of avoiding taxes; simply fail to file a tax return and blame it on a mental condition. On the downside, you do run the risk of spending time in prison for tax evasion. And I hear the food is not very good in prison.
To be sure, filing your tax return properly and on time is important. Here are just a few things to think about.
1. File your return on time.
If you expect to owe taxes this year, be sure to file your tax return by the April 30 deadline, even if you can't pay the tax bill yet. If you fail to file on time, you'll face a penalty of 5 per cent of the tax balance owing. You'll face an additional 1 per cent for each month the return is not filed, to a maximum of 12 per cent.
These penalties could double in amount if it's your second time failing to file on time in the past three years. Even if you know that information is missing, you should still file on time and simply attach a statement explaining what is missing, including estimated amounts. By the way, your tax return will have to be sent by first-class mail (postmarked), courier, or delivered by hand to one of Canada Customs and Revenue Agency's Tax Services Offices on or before next Wednesday to be considered timely filed.
If the taxman owes you money, you'll still benefit by filing on time because you'll get your refund sooner. Of course, Canada Customs doesn't generally require you to file if they owe you money, but be sure to file -- after all it is your money.
2. If you can, take advantage
of extended deadlines.
You'll be glad to know that your deadline for filing is extended to June 16, 2003, if you or your spouse reports income or losses from self-employment. If you owe tax, you'll still have to pay that tax balance by April 30 if you want to avoid interest charges, but there will be no late-filing penalty provided your return is sent by June 16.
The deadline for the final tax return of a deceased individual may also be extended. A deceased's tax return is due by the ordinary due date for the return, or six months after the date of death, whichever is later.
3. File certain other
forms on time.
Let's face it, many Canadians realized capital losses on the sale of certain investments in 2002. These losses can be carried back up to three years to 1999, 2000, or 2001 to offset capital gains in those years to the extent the losses can't be applied against capital gains in 2002.
You'll have to file Form T1A in order to carry these losses back, and that form will have to be filed by your regular filing due date (generally April 30, 2003) or Canada Revenue is not obligated to honour the request.
In addition, if you own any assets located outside of Canada with a cost of more than $100,000, you're required to disclose this on Form T1135, which is due on the same date as your tax return. Failure to file Form T1135 could result in penalties of $25 a day ($100 minimum) to a maximum of $2,500. If Canada Revenue demands that you file this form and you don't comply, the fine is $500 a month up to $12,000. A second demand could result in a fine double this amount.
4. Compare your return
with last year.
One of the best ways to determine whether you've prepared your tax return properly is to compare your tax return with last year's. If there are any significant differences between this year and last year in the types of income, deductions, or credits, or the amounts of these items, you should ask yourself why. You might just uncover a mistake in your tax return this year, or even a mistake made in the prior year, which could lead to a recovery of excess taxes paid last year. This brings me to the next point.
5. File an adjustment
to correct a mistake.
If you discover that you've made a mistake on a tax return that you have already filed, it can be pretty simple to correct the error. You should use Form T1-ADJ, T1 Adjustment Request, to make the correction.
This is a one-page form that is very easy to fill out, and you'll have to file one form for each tax year in question.
Now, a tax return becomes statute barred after three years from the date on the Notice of Assessment, which generally means that no changes can be made to the return after that date.
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